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Stock Indexes Circuit Breakers and Trading Hours

Understanding trading hours and circuit breakers in the Futures markets can be rather confusing to new Futures traders. I would like to address some of these frequently asked questions and clear up any confusion you may have regarding these two areas.

1) When did the trading hours change for the Stock Indexes traded on the CMEGroup Exchange?

On November 19, 2012 the trading hours for Mini Stock Indexes changed. Prior to this date the Mini Stock Indexes stopped trading each day at 15:15 CT and the new trading day would start at 15:30 CT. After November 19th the market now trades until 15:15 CT and suspends trading. At 15:30 CT the market resumes trading until 16:15 CT at which point the market closes for the day. The official open for the next trading session is now 17:00 CT. Stock Indexes trade until 16:15 CT on Fridays of each week as well.

2) Did the Regular Trading Hours session change for the Open Outcry venue?

No, the hours remained the same. 08:30 to 15:15 CT, the official settlement time remained the same of 15:15 CT each trading day.

3) New circuit breaker rules for Stock Index Futures imposed by the CMEGroup to be in alignment with the Securities Exchange Commission (SEC)

The SEC and CMEGroup Exchange joined together to modify the daily price limits of the Stock Index Futures to help eliminate exceptional equity price volatility. These rules are to take affect if the Stock Indexes are down from the previous days close more than a predefined amount. In the past these values were calculated on a quarterly basis, with today’s market volatility the SEC and CMEGroup felt it was more beneficial to calculate them each day.

While some Futures markets have Limit Up and Limit Down restrictions each day the Stock Indexes have circuit breakers. The difference between the two is that a Limit move does not allow price to go any further for the current trading session. A Limit move is also applicable to high volatility for both the upside and downside. A circuit breaker for the Stock Indexes is only triggered to the downside and no restrictions to how high price can go on the upside. Circuit breakers will only halt trading temporarily and once the market resumes trading they can continue to fall more or rally.

Table 1 shows both the current and previous circuit breaker values.

Previous Levels

Effective April, 2013

Level 1

10%

7%

Level 2

20%

13%

Level 3

30%

20%

The S&P Futures contract will be the market to trigger these market wide circuit breakers. The consensus was that the S&P represented a broader view of the market rather than just 30 stocks in the Dow Jones Average.
Each day the CMEGroup will list what the daily circuit breakers are for these Stock Indexes at this link: http://www.cmegroup.com/trading/equity-index/price-limit-guide.html

Each day at the markets close the CMEGroup will create a Reference Price from where price is trading at 15:00 CT, beware this is not the 15:15 CT suspended session time. 15:00 CT coincides with the United States Stock Market closing time and puts the Stock Index Futures contracts in alignment with the stock exchanges hours.

From this reference price a value of 7% of the contract value is derived and subtracted from it. This becomes the first circuit breaker for the Stock Index Futures, Level 1. If price trades down 7% from the previous day’s reference price then the CMEGroup will halt trading for 15 minutes. Once the 15 minute halt is up the market is free to rally or fall to Level 2 of down 13%. If this occurs the CMEGroup will again halt trading for 15 minutes. When trading resumes the market can rally or fall even more. Level 3 is when the market is down 20% from its prior day’s reference price. If the market trades to Level 3 the CMEGroup will stop trading for the day in the Stock Index Futures. The stock exchanges will also close at this point.

The above circuit breakers apply only during the Regular Trading Hours session. The Extended Trading Hours session will have separate daily circuit breakers. During the Extended Trading Hours session the market has a circuit breaker of up and down 5% from the prior day’s reference price. During the Extended Trading Hours session the market is not allowed to trade beyond this 5% band until the next Regular Trading Hours session starts.

Circuit breakers for the Stock Index Futures have been around since 1988 and have been modified over the years. During my 26 years of trading I have only seen 3 maybe 4 of these circuit breakers be traded at. With these new smaller circuit breaker sizes I have a feeling we might see a few more now.

As a trader it is wise to always be aware of any specifications or rules that may cause the market you are trading to be suspended or halted during the day. While these are not frequent occurrences we still need to be aware of these circuit breakers.

Trading hours rarely change, but when they do they too need to be noted and each trader will have to adapt to these new hours. Knowing your market could mean the difference between getting an overnight margin call or holding a day trade over the weekend accidently.

“Look at everything as though you were seeing it either for the first or last time” Betty Smith

Disclaimer

This newsletter is written for educational purposes only. By no means do any of its contents recommend, advocate or urge the buying, selling or holding of any financial instrument whatsoever. Trading and Investing involves high levels of risk. The author expresses personal opinions and will not assume any responsibility whatsoever for the actions of the reader. The author may or may not have positions in Financial Instruments discussed in this newsletter. Future results can be dramatically different from the opinions expressed herein. Past performance does not guarantee future results.
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